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Crude Oil Advances as Speculation on ECB Rate Increase Weakens Dollar

Oil increased for the fourth time in five days as speculation that the European Central Bank will further raise interest rates strengthened the euro against the dollar, boosting commodities’ appeal as an alternate investment.

Oil rose 1 percent as the dollar tumbled a day after S&P Ratings Service cut the nation’s long-term credit outlook to negative. The Energy Department will probably report tomorrow that U.S. oil supplies jumped for a seventh week. Crude and equities fell yesterday on the ratings cut and after Saudi Arabia said the market was oversupplied.

“We’re seeing a bit of a rebound on the weaker dollar and a little bit of confidence because the stock market isn’t falling apart and because of the ongoing risk in the Middle East, which is still strong,” said Phil Flynn, vice president of research at PFGBest in Chicago.

Crude oil for May delivery gained $1.03 to settle at $108.15 a barrel on the New York Mercantile Exchange. Futures have risen 33 percent in the past year. The May contract expired at the close of Nymex floor trading. The more actively traded June futures rose 59 cents, or 0.6 percent, to $108.28.

June prices were little changed from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles increased 667,000 barrels to 356.1 million. June oil rose 64 cents, or 0.6 percent, to $108.33 a barrel in electronic trading at 4:33 p.m.

’Fishing for Stops’

Prices extended their advance after the June contract broke through $108 and $108.20 a barrel, said Carl Larry, president of Oil Outlook & Opinions LLC in Houston.

The market is “just fishing for stops,” he said, referring to standing orders to buy or sell when a specified price is reached. Oil is volatile because of expiration and since many traders are off for Passover or before Easter, he said. “It’s weeks like this when people can go ahead and fish for levels to trigger more buying and more selling.”

ECB governing council member Nout Wellink said in Toronto late yesterday that the central bank’s April 7 interest-rate increase sent an “extremely important” signal to investors aimed at preventing expectations of higher inflation.

The dollar fell 0.8 percent to $1.4343 per euro at 3:25 p.m. in New York. It reached $1.452 in intraday trading on April 12 and April 13, the lowest levels since January 2010.

Standard & Poor’s said yesterday that the U.S. government may lose its AAA credit rating unless policy makers agree on a plan to cut budget deficits and the national debt.

Equities Edge Up

U.S. Treasury Secretary Timothy F. Geithner said the administration and Congress need to work together over the “next couple months” to agree on a framework for cutting budget deficits with “enforceable limits” on accumulating debt. He told Bloomberg Television there is an emerging consensus on “how much we have to do.”

The Standard & Poor’s 500 Index gained 0.6 percent to 1,312.62. The benchmark gauge for American equities dropped 1.1 percent yesterday, the most since March 16, on the S&P ratings cut. The Dow Jones Industrial Average rose 65.16 points, or 0.5 percent, to 12,266.75.

The foreign minister of Bahrain, an island nation off the eastern coast of Saudi Arabia, said today that troops from Persian Gulf countries will remain in Bahrain as a counter to Iran. The country declared a three-month state of emergency March 15 after troops from Saudi Arabia and other Gulf states arrived to help quell protests led by majority Shiite Muslims.

“They are there for a mission protecting our vital institutions against foreign threat,” Sheikh Khalid Bin Ahmed Al-Khalifa told reporters yesterday in Dubai. His remarks about the troops staying were made in a posting on Twitter.

Saudi Arabia is the world’s largest oil exporter.

Reversing Early Decline

Earlier, oil tumbled 1.5 percent amid signals that prices at their highest levels since 2008 may hurt fuel demand.

OPEC Secretary General Abdalla el-Badri said there is “no shortage of oil anywhere in the world,” even after supply curtailments in Libya. Iran’s OPEC Governor Mohammad Ali Khatibi said the group is unlikely to alter output targets when it meets in June.

“The bears appear to have been checked after a big day yesterday,” said Peter Beutel, president of Cameron Hanover Inc., an energy-advisory company in New Canaan, Connecticut. “If we get a big crude oil drop tomorrow that could give the bears some leverage to move the market yet lower.”

U.S. oil inventories increased 1.3 million barrels in the seven days ended April 15 from 359.3 million a week earlier, according to the median of 13 analyst estimates before an Energy Department report tomorrow.

Brent crude oil for June settlement slipped 28 cents, or 0.2 percent, to $121.33 a barrel on the ICE Futures Europe exchange in London.

Oil volume in electronic trading on the Nymex was 517,320 contracts as of 4:38 p.m. in New York. Volume totaled 574,331 contracts yesterday, 27 percent below the average of the past three months. Open interest was 1.55 million contracts.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net.

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